Business Intelligence Consolidation Won't Kill Innovation, Claim ExecsBusiness Intelligence Consolidation Won't Kill Innovation, Claim Execs

In a few months, after IBM and SAP will have completed their acquisitions of Cognos and Business Objects, the world's four largest software vendors will have control of more than half of the $5-billion-a-year business-intelligence software market.

The obvious endgame for IBM, Microsoft, Oracle, and SAP is to sit down with customers and sell them as much of the BI-related software "stack" as they can, extending from databases and warehouses up to the reporting and query tools that sit on users' desktops. This may appeal to IT managers looking to deal with as few software vendors as possible. But it would be a mistake to ignore what's happening in the other half of the BI market.

First, consider why Business Objects and Cognos decided to no longer go it alone. Both companies' market share dropped last year, and both their BI tool revenues grew slower than the market average of 11.6%, according to IDC. Most of their revenues are derived from tools that run queries against data and generate reports, both quickly commoditizing functions in the evolving BI market. Microsoft has been acquiring and improving its own BI desktop tools in the past few years -- recently rebranding them all, including Excel, under the name of PerformancePoint Server--and is rapidly gaining share in the BI market. Competition is coming from everywhere: even Google's enterprise search appliance, in a sense, is a data query tool.

Once Cognos is acquired, the only "large" company left in BI (not including those that sell the deeper data warehouse layer) will be SAS Institute, which will exceed $2 billion in sales this year. Chief marketing officer Jim Davis insisted in an interview Monday that the company isn't interested in being acquired. Even so, CEO and co-founder Jim Goodnight could easily set his own terms should he ever have a change of heart, and SAS isn't subject to a hostile takeover: Goodnight, recently cited by Forbes magazine as having a net worth of $8.7 billion, owns two-thirds of the company. SAS is among the fastest-growing BI vendors because it has a near-lock on the market for advanced analytics, including predictive analysis, and a loyal customer base, some of whom have already invested millions on SAS technology. This highly sophisticated (and typically expensive) form of BI makes up about 25% of the company's revenues and drives other areas, including data integration (55% of revenues), and query and reporting tools (10%). The remainder of the SAS's business comes from services.

Among the independents, next in size after SAS is MicroStrategy, which reported revenues of $313.8 million last year. In a letter sent internally to staff Tuesday -- a copy of which was provided to information -- CEO Michael Saylor predicted Business Objects and Cognos will veer off " off on proprietary strategic trajectories, which place them in a conflict of interest with large segments of their own customer base."

Saylor predicted to his staff that Hyperion and Siebel Analytics development teams will favor Oracle over DB2 or Teradata; Business Objects will be tailored more for SAP apps than Oracle Financials; and Cognos to be "less aggressive" in support of Teradata, Hewlett-Packard, Netezza, Sun, Oracle, and Microsoft.

"Integration and synergy with the parent company will outweigh customer-driven requests for more features, more performance, and more support for existing applications in the current IT production environments," he added. "We see the chaos and confusion inherent in these mergers as creating a vacuum in the market, and we intend to fill it."

Microstrategy COO and co-founder Sanju Bansal reiterated the company stance in an interview Monday. "History has shown us CIOs prefer an open stack versus a proprietary stack," Bansal said. "The second point is there may be conflicts of interest that keep vendors form working together. It's hard to believe the Teradata folks will open up their technology plan to IBM, because the two are mortal enemies."

Dave Menninger, VP of marketing at Inforsense, a $7 million-a-year BI company, is among several independent vendor execs claiming that consolidation could actually drive innovation in the BI market.

"If you look at the market as a changing, living organism there's a process that continually happens," Menninger said in a Wednesday interview. That starts with small companies that sprout up with good ideas, grow into something successful, often go public or get acquired. But not long after, the best and brightest often split. "When companies get too big, people who are creative and innovative find that constraining," he said. "They then go to places where they can express their ideas and bring them to market in less than a three-year period."

Inforsense's technology, sort of a hybrid of query tools and advanced analytics, is popular among pharmaceutical companies for drug discovery and patient demographics analysis.

Information Builders, a privately held company with about $300 million in annual revenues, also took a positive spin on the consolidating market. "We're feeling pretty exited about the market, as it seems there will be no slow down in BI as a focus technology in three to five years," said chief strategy officer Michael Corcoran in a Wednesday interview. "Our focus will be multi-platform-agnostic. As an independent vendor, we have a much better capability to innovate."

Information Builders' growth sputtered to a halt in 2006 as the company began transitioning away from mainframe-oriented BI tools to modern-day BI products including more cutting edge areas, such as mobile BI access. The shift is paying off, and revenues are on target to rise 10% this year, Corcoran said. The company is working on user interface technologies in its labs that will deliver more visual capabilities, including animation, to BI reports, he added.

Information Builders also sees an opportunity to build up its channel sales through niche software companies. A developer of customized ERP applications for retail, for example, may prefer to offer its customers Information Builders for analyzing their retail data, rather than SAP-owned Business Objects, noted Corcoran.

The independent BI vendors raise some good arguments. IBM software senior VP Steve Mills, however, claims no such thing will happen with the Cognos acquisition. Just as Cognos will have to continue connecting to non IBM databases, Mills said in a Monday interview, IBM will continue to support other flavors of BI. That, he said, is a given in the "heterogeneous world" of software.